ADANI ENTERPRISES All eyes on coal mining:: Edelweiss

AEL’s Q2FY13 adj. PAT of INR2.3bn was in line with our estimate. Coal
trading volume at 8.8 MT was down 10% YoY but management remains
confident of 40MT coal trading and 116MT of port cargo targets. While
power business has near term challenges, domestic and overseas coal
mining would be the next trigger. Maintain ‘BUY’ with a TP of INR377.

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Coal trading volumes subdued, expect pick-up in H2
AEL reported consolidated PAT (after adjusting for INR3.2bn of forex gain and INR2.2bn
of deferred tax) at INR2.3bn was in line with our estimate. Despite a correction in
international coal prices (drop in average realisation from USD95/t to USD87/t QoQ),
AEL traded 8.8 MT of coal, down 10% YoY in volumes while EBITDA margin of 10.3%
improved from 8.2% in Q1FY13. The management, however, remains confident of a full
year trading volume of 40 MT (our estimates of 36 MT) taking comfort from the
existing orders for H2 and new tenders being floated for the current fiscal.
Port delivers, power needs hand holding, mining takes baby steps
Ports under APSEZ accounted for 45% of EBITDA by handling an aggregate 25.34MT of
cargo (with a target of 116MT for FY13) given the strong take-or-pay contracts at
various ports. The power entity sustained losses for the fourth straight quarter on
transmission bottlenecks and lower coal supplies. AEL has approved equity infusion
(INR15bn of loans to be converted into equity) into APL to support near term cash flow.
Mine ram-up at Bunyu, Indonesia, is likely to be much gradual at ~4-5 MT in FY13 (from
~5-6 MT earlier). MDO at the ParsaKante block is set to begin pending a State Pollution
Control Board clearance expected anytime soon. The USD4.2bn (1/3rd each of ECB,
Project debt and equity) Galilee project is on track for financial closure by Mar 2013.
Outlook and Valuation: Coal mining, the next trigger; Maintain ‘BUY’
While the power business has challenges in the near term, the port and trading
verticals continue to deliver robust profits. Given the likely start of domestic MDO
business and the environmental clearance in Australia, coal mining is likely to be the
next trigger for the company. At CMP of INR222/share, the stock has significant upside
potential to our SOTP TP of INR377/share (excluding coal mining business). Maintain
‘BUY/Performer ‘rating on the stock.